Ethics Resource Center

Published: March 25, 2010

A Case for Cooperation: the Defense Industry Initiative

The near-collapse of the U.S. financial system is spurring new interest in ways to build an ethical culture and techniques to benchmark progress, not only by company but by the width and breadth of an industry.

The view is that in the course of the meltdown, the big Wall Street players successfully demonstrated that rules are necessary, but insufficient, to prevent reckless risk-taking and that a workplace culture of ethical leadership is equally essential.

“Whether an institution – or the entire system – is too big to fail,” writes New York Times business reporter and author Andrew Ross Sorkin, “has as much to do with the people that run these firms and those that regulate them as it does any policy or written rules.”

The new interest in industry-wide self-governance may be driven, too, by distaste for the big stick wielded by the federal government, which was not subtle about intervening in the financial markets, bailing out some companies, letting one major firm fail, driving some institutions to merge or be acquired and even setting executive pay.

By comparison, stepped-up self-governance and positive actions to improve performance seem to look more and more attractive.

To see an industry that already has been there and done that, today’s banks, automakers, securities brokers and financial high-flyers can take a look at the defense procurement field, which saw much the same handwriting on the wall almost a quarter-century ago.

Spurred by contracting scandals, criminal prosecutions and the findings of a presidential blue ribbon commission, 17 defense firms led by Jack Welch of General Electric formed the Defense Industry Initiative on Business Ethics and Conduct in 1985. By June 1986, 32 companies had signed up. (For more information, visit www.dii.org.)

Twenty-four years later, DII, with 90 members, is still teaching the value of ethical culture and effective ethics programs, including a code of ethics, training for ethics officers who then train others, seminars on best practices and mentoring of suppliers and up-and-coming companies. Member CEOs sign a pledge to abide by DII’s principles of ethical conduct and compliance.

Every two years, DII also encourages member firms to sign up for a company-specific ethics survey of employees. The survey work and analysis of data are performed by the Ethics Resource Center, and results are both furnished to participating companies and – importantly – benchmarked against the performance of the industry as a whole. Over time, the benchmarking data give a more and more refined picture of the pace of progress as well as trends and emerging issues.

This year’s surveys, with at least 15 participating companies, will begin in April and end in October, says ERC Senior Director of Benchmarking Services Leslie Altizer.

One strong believer in DII and the benchmarking surveys is Michael A. Monts, vice president for business practices at United Technologies (UTC), who favors the four key behaviors identified by the Ethics Resource Center as a model for building an ethical culture. They are effective communication, including an element of ethics; modeling the right behavior among managers (“walking the walk”); keeping commitments (“business in a market economy is based on reciprocity,” Monts says); and maintaining accountability across the enterprise (“employees are looking for justice and fairness”).

“The benefit of the surveys is not in understanding the model,” says Monts. “You already understand it. It’s already out there and available. It instead helps you to identify where within your organization there are opportunities for improvement. Where within your organization you might have an example to hold up representing the right way that things are done.”

Echoing Sorkin, author of “Too Big to Fail,” Monts stresses the importance of ethical culture in influencing employees. “Is training necessary? Yes,” he says. “Absolutely necessary. It’s a foundational piece. But big problems don’t happen because people weren’t trained. Big problems happen because they decided to break the rules.”

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In This Issue

• The Importance of Leadership in Times of Crisis. Column By Patricia J. Harned, Ph.D. President, ERC
• Patricia J Harned, ERC President, testifies before the United States Sentencing Commission
  
• The Dark Side: Critical Cases on the Downside of Business. Book Review By Kyle Goetschius
  
• A Case for Cooperation: the Defense Industry Initiative
• ERC Honors the Late Carol Marshall with the 2009 Pace Award
• January Fellows Meeting Retrospective